Center for Investigative Reporting: The bill that could end secrecy around UC’s venture investments

The University of California has invested more than $200 million in some private equity funds sold by two high-flying Silicon Valley venture capital firms.

But for years, the firms haven’t provided UC with any information about how each individual investment is performing, court records show. Open-government advocates say the policy allows UC to avoid informing the public about an issue of critical importance – the payout from key elements of UC’s $90 billion pension and endowment portfolio.

UC says the information blackout is the price it must pay to maintain access to “extremely profitable” investments marketed by the venture firms Kleiner Perkins Caufield & Byers and Sequoia Capital.

Now, a state lawmaker wants the Legislature to step in.

A bill introduced recently by state Sen. Richard Pan, D-Sacramento, would require UC to obtain specific performance data on all its investments – including venture funds – and reveal the information under terms of the state’s Public Records Act.

“It makes no sense that UC would not want to know how their investments are performing,” Pan said. “It is astonishing to me.”

Students, taxpayers and retired university employees all have a keen interest in whether UC is investing its public funds wisely, he argued, and nobody can know if data is kept secret.

In announcing the bill, Pan cited an analysis by The Center for Investigative Reporting showing that UC’s endowment has produced the worst investment returns of any of the richest colleges in the country over the past decade.

“The need to put the information in the public’s hands could not be more timely,” Pan said.

UC has not yet taken a position on Pan’s bill, a university spokeswoman said.

If the measure becomes law, it would end a 12-year legal fight over how much information UC must collect and disclose about its investments.

As a state university, UC is subject to the Public Records Act. That makes some venture firms wary, UC has said in court: They fear that their own confidential business information will wind up being disclosed via a public records lawsuit against UC. As a result, some firms won’t let UC invest, the university contends. UC says that has interfered with its efforts to maximize returns for the university and its retirees.

According to court records, UC invests about 2 percent of its holdings in “private equity” partnerships formed to fund private companies. According to a 2014 report, UC has committed $239 million to 10 Kleiner Perkins and Sequoia funds since 1994.

For years, the firms provided detailed, fund-by-fund performance data to UC. Contending that the data included trade secrets, the firms required UC to keep the information secret.

In 2003, a UC employees union won a public records lawsuit forcing UC to disclose specific performance data for 94 private equity funds.

The firms also stopped providing UC with performance data for funds in which it already had invested, court records show, and UC didn’t object. The firms continued to provide what they called aggregate data – combined investment performance for all the funds sold by each firm.

Then, in 2012, the Reuters news agency made a new effort to use the Public Records Act to get investment returns for the funds. In court, UC contended that Reuters wasn’t interested in informing the public and merely wanted to sell advertising on its financial website.

But an Alameda County Superior Court judge sided with Reuters, ordering UC to make reasonable efforts to obtain the information from the venture capital firms and make it public. Instead, UC appealed and won: The public records law didn’t apply because UC didn’t have the data Reuters wanted, the appeals court ruled.

If Pan’s measure passes and the data is made public, it likely will be a “mixed bag,” predicted Karl Olson, Reuters’ lawyer.

One venture fund in which UC invested helped bankroll Google Inc., so its returns should be outstanding, Olson said.

“They don’t want to report on a fund-by-fund basis because some of the UC investments probably took a bath,” he said. “They were in green tech, and a lot of the green tech didn’t do well.”